Tennessee bill gives data centers ability to self-power with limited regulation

Tennessee lawmakers this year introduced seven bills aiming to set up guardrails for data centers in the state, but only one crossed the finish line.

Data centers house the computers, networking equipment and cooling systems used to manage digital data. As data centers proliferate across the nation and electricity demand rises, some states have taken steps to control the resource-intensive industry’s impact on their infrastructure.

Large data centers capable of supporting Artificial Intelligence development and use can consume upward of 100 megawatts of power — enough to support 80,000 U.S. households, according to one Congressional report. Tennessee Valley Authority, the federally owned electric utility that provides power for Tennessee and portions of other states, approved a deal in February that allows Elon Musk’s Memphis-area xAI data center operations to purchase up to 300 megawatts of power.

Both Democrats and Republicans in Tennessee’s state government pitched bills concerning the industry, ranging from registration and permitting requirements to mandatory reporting on water, electricity and fuel usage. One bill would have required “high performance computing facilities” to devote half of their data processing output for “public benefit.”

All but one of those bills failed or fizzled before making it to a vote.

The slate of legislation’s sole survivor: A bill stipulating that the owners of data centers (requiring at least 50 megawatts of power) must pay for any infrastructure upgrades needed to produce the electricity that the data center demands. 

The idea, the bill’s sponsors said, is to protect people from ballooning electricity bills due to the potential cost of new infrastructure when data centers come to town. The legislation prohibits utility companies from using ratepayer funds to pay for costs solely associated with data centers.

But data centers may still be able to avoid shouldering these costs alone.

“Utilities can only share costs with data centers if the upgrades also benefit other ratepayers beyond the data center or follow the normal rules that apply to all large customers equally,” Sen. Brent Taylor, the bill’s Senate sponsor and a Memphis Republican, said during one Senate committee.

And the bill allows data centers to produce power themselves — without state or local oversight — using equipment like gas turbines, or purchase power from independent power producers that operate outside of public utilities.

“In Tennessee, we love data centers,” Rep. Ed Butler, a Rickman Republican and the bill’s House sponsor, told fellow lawmakers during the recently concluded legislative session. “We want to have data centers, but we want to put guardrails around that to protect our ratepayers.”

Trey Bussey, an attorney with the Southern Environmental Law Center, said the bill won’t provide any “meaningful protections” from higher rates or environmental concerns due to the exceptions added into the legislation before its passage, and the state’s limited ability to regulate utility rates that fall under TVA’s authority. Deregulation also means communities will have no public process to voice concerns.

“This bill removes the guardrails so that independent, gas-fired power plants aren’t prohibited, and they’re not regulated either,” Bussey said. “Our concern is that these gas-fired power plants will pop up in people’s communities, in their backyards, creating all sorts of new levels of harmful air pollution and potentially bigger strain on their water infrastructure all to serve the data centers of some of the biggest tech companies in the world.”

Butler said independent power sources still have to comply with some federal rules. The demand for power will likely encourage more independent electricity generation, he said, “which ultimately, I think will help ratepayers reduce the cost at their meter.”

A battle over data centers heats up along the Mississippi-Tennessee state line

Lawmakers did not discuss pollution concerns related to this type of power generation. 

Sixty data centers are operating or under construction in Tennessee, according to Data Center Map, a market intelligence company tracking data center services. The Nashville area is home to 25 of the facilities. The Memphis area has 13, including xAI’s supercomputer facilities Colossus and Colossus 2. Power for the centers comes from an xAI-owned energy plant with more than 24 gas turbines in Southaven, Mississippi.

Those turbines, which power the centers behind the company’s AI chatbot Grok, are the subject of the NAACP’s recently filed lawsuit against the company over alleged illegal air pollution. 

Data centers have proliferated in recent years to provide the computing power necessary to run generative Artificial Intelligence models, according to the Pew Research Center. 

More data centers means significantly more demand for electricity.

Data centers accounted for more than 4% of electricity consumption in the U.S. in 2024 — about 183 terawatt-hours — according to International Energy Agency estimates. For comparison, Pakistan’s electricity demand in 2025 totaled 196 terawatt-hours, an October 2025 Pew Research Center article states.

Data centers also produce a lot of heat, requiring electricity and either chilled air or water for cooling. A 100-megawatt data center (a size capable of supporting AI uses) could consume as much water as 2,600 U.S. households, according to one estimate by the International Energy Agency.

2026 Data center bill notebook: What passed, and what failed

SB2584(Jackson)/HB2047(McCalmon): Data centers receiving certain tax credits would have to certify that they had no Worker Adjustment and Retraining Notification, Fair Labor Standards Act or federal immigration law violations in the last year. This bill fizzled in Senate committees and was taken off notice in the House.

SB2653(Taylor)/HB2392(Reneau): The “Tennessee Data Center Impact Review Act” would require data centers to secure water and wastewater operator board permits before beginning operations, and would require centers to report information including water sources and daily, peak and annual water usage. This bill had a fiscal note of about $120,000 per year. It was deferred multiple times and ultimately relegated to a general subcommittee, never making it to a vote.

SB2128(Taylor)/HB1847(Butler): This bill allows data centers to produce power themselves (using gas-powered turbines or other methods) or purchase power from independent power producers that operate outside of utilities. If the data center purchases power from a utility, the bill states that data center owners must cover the cost of any infrastructure upgrades needed to support the data center. The upgrades or new infrastructure cannot result in higher rates for ratepayers, unless that infrastructure also benefits other ratepayers. This bill passed in the House on April 21, 76-14 with one person present and not voting. It passed in the Senate on April 22, 28-0 with two people present and not voting. The bill has not yet been sent to Gov. Bill Lee’s desk.

SB2112(Campbell)/HB2456(Pearson): Data centers would be required to register with the Department of Revenue and report fuel, electricity and water usage. This bill failed in the House Business and Utilities Subcommittee on March 18, and was assigned to a general subcommittee in the Senate on March 24.

SB1682(Lamar)/HB2061(Towns): Data centers would be required to register with the Public Utilities Commission and report electricity and water usage and rates. This bill failed in the Senate Commerce and Labor Committee due to a lack of second on March 3, and was taken off notice in the House on March 11.

SB1999(Lamar)/HB2054(Camper): The “Data Center, Artificial Intelligence and Clean Transition Tariff Accountability Act” would approve tariffs for large, energy-intensive users and require funding for incremental generation and grid upgrades proportionate to usage. This bill carried a fiscal note of $138,800 in FY26-27 and $128,800 per year moving forward. It fizzled in early March and never advanced to a vote.

SB1832(Yarbro)/HB1461(Clemmons): High Performance Computing facilities would be required to devote 50% of their computing or data processing output for “a public benefit.” They would also be required to report annually on their carbon footprint and conduct annual internal compliance audits. This bill failed in the House Agriculture and Natural Resources Subcommittee in a 2-6 vote on March 3, and was assigned to a general subcommittee on March 10.